what are financial securities? describe some fonancial insteuments.

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Expert Solution

Financial securities are paper assets such as bonds and stocks, which are tradable on the respective market.

The characteristics of financial security are defined in the contract. For example, the characteristics of a bond may be as follows:

A bond is a debt instrument and the issuer of the bond has an obligation to fulfill the interest payment on a regular basis.

Face value of the bond $1,000

Price of the bond $1,000

Coupon rate 4%

Maturity 10 years

Similarly, the stock is traded in the stock exchange, and may have the following characteristics:

A stock gives the ownership right to the holder and does not have a maturity date. It is traded in the stock market, which is the secondary market. A stock may or may not pay a dividend based on the company's dividend-paying policy. The price of the stock is determined by the combined forces of supply and demand in the secondary market.

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